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TORONTO—Lawyers representing plaintiffs in a proposed class-action lawsuit against Sino-Forest Corp. are seeking more than $7.37 billion in damages.

Law firms Koskie Minsky LLP and Siskinds LLP filed the claim in Ontario superior court, alleging executives have conspired to inflate share prices and accusing the troubled forestry company of making misrepresentations about its operations.

The Ontario Securities Commission halted trading of Sino-Forest shares on the Toronto Stock Exchange (TSX) last week after accusing it of fraud.

The lawsuit seeks money for those who bought Sino-Forest shares on the stock market and through the company’s public offering.

The claim names several Sino-Forest executives, including former CEO Allen Chan, auditor Ernst & Young and financial institutions that acted as underwriters for the company’s 2009 prospectus offering. They include TD Securities, Dundee Securities, RBC Securities, Scotia Capital, and CIBC World Markets.

“The underwriters earned fees from the class, whether directly or indirectly, for work that they never performed or that they performed with gross negligence, in connection with the offerings, or some of them,” according to the statement of claim.

“Sino, E&Y and the individual defendants further breached their duty of care as they failed to maintain appropriate internal controls to ensure that Sino’s disclosure documents adequately and fairly presented the business and affairs of Sino on a timely basis,” it said.

The lawsuit also accused Sino-Forest of back-dating or mispricing stock options granted to executives in violation of both company and regulatory rules.

The lead plaintiffs in the suit are the Labourers’ Pension Fund of Central and Eastern Canada and the International Union of Operating Engineers Local 793 pension plan.

If the suit is granted class-action status, any judgements or settlements would be available to all members of the class.

The allegations against Sino-Forest have not been proven in court.

It’s been a rough few months for the Chinese forestry-products firm whose credit rating is in shambles and the sudden resignation of CEO Allen Chan sent investor confidence reeling.

Moody’s Investors Service slashed Sino’s rating and warned of a further downgrade, while Standard & Poor’s withdrew its ratings on the company altogether due to the lack of reliable information, but not before cutting its rating to CCC – the lowest possible before default status.

“We lowered the rating on Sino-Forest partly because we believe recent developments point towards a higher likelihood that allegations of fraud at the company will be substantiated,” said Standard & Poor’s analyst Frank Lu.

Shares in Sino-Forest were hammered earlier this summer after short-seller Muddy Waters Research first launched allegations that the company exaggerated sales and assets.

But the stock recovered in recent weeks as investors bet that the company would be cleared.

Although most of its operations are in China, Sino-Forest was once the most valuable forestry company listed on the TSX, ahead of stalwart lumber producer Canfor Corp. and paper producers Domtar and AbitibiBowater.

However, the stock had recovered in recent weeks as investors bet that the company would be cleared.

Allen Chan has also resigned as a director and chairman of Greenheart Group, a company in which Sino-Forest holds a 64 per cent stake.

The move came as the Hong Kong stock exchange suspended trading in Greenheart shares.

Chan resigned from the chairman’s role at Sino-Forest two days after the Ontario Securities Commission stopped trading in the Toronto-listed company and made allegations of fraud under a temporary order.

The regulator initially tried to remove Chan from his role early last week, but later backed away from the order that he resign because it was unable to do so without holding a hearing.

The company has raised about $3 billion in share and corporate debt issues since 2003 – bought by Canadian, American and international investors. Its stock, which traded for more than $14 before allegations of fraud were first made had fallen to as low as $1.29.

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